Alex Wild: Empty promises that are holding back business

There was the £13bn annual grab by hiking VAT to 20 per cent – despite Nick Clegg’s warnings of “Tory VAT bombshell” and David Cameron’s declaration of having “absolutely no plans” to do so.

There was also the abandoned pledge to increase the threshold for Inheritance Tax – a “death duty”, according to then Shadow Chancellor George Osborne – to £1m.

But another tax hike was vehemently opposed by both the Lib Dems and the Conservatives in opposition: the increase in business rates levied on empty commercial and industrial properties.

Now, in office, both parties have reneged and defend the tax on revenue-raising grounds.

But just how much revenue does the Government actually raise from business rates on empty properties? It has never been determined, despite senior politicians suddenly changing their minds about just how damaging it was for the simple reason that it raised revenues. The TaxPayers’ Alliance has revealed for the first time just how much it’s raking in. The numbers are striking. With only minimal relief in place, the amount councils are collecting has increased by 20 per cent to more than £1.1bn. That bill has to be paid, even if there’s no rent coming in to cover it.

At the 2007 Budget, with the economy growing and Gordon Brown’s spending binge showing no signs of abating, the Chancellor announced the end of business rate relief on empty properties. After a brief exemption period, full business rates would be payable on empty commercial and industrial properties. They had previously been subject to 50 per cent and zero per cent business rates, respectively.

When it became evident that the Brown boom had merely been a debt-fuelled mirage, the economy slid into a recession from which we are still a long way from recovery. In an uncharacteristic gesture of fiscal moderation, Brown decided to offer a brief respite to some property owners, granting some exemptions for lower-value properties until April 2011. But small businesses have told us that the exemption was so low as to be virtually meaningless. In opposition, Business Secretary Vince Cable described taxing empty property as “a ludicrous situation, completely counterproductive and economically very damaging”. Fellow cabinet minister Michael Gove described the removal of empty property rate relief as being “universally recognised as a wicked and ungodly act”.

Outside of politics, such uncompromising rhetoric would qualify as genuine opposition to an idea. But this is Westminster; so many property owners across the UK are now paying full business rates on empty properties.

The rationale that the removal of relief would drive down rents and incentivise landlords to invest in property isn’t backed up by any empirical evidence. A recent survey by the Royal Institution of Chartered Surveyors revealed that a majority of investors, owners, occupiers and developers believe that empty property rates had been unsuccessful in reducing rents. In Yorkshire and the Humber, property owners paid almost £80m in business rates on empty properties last year, with those in Bradford and Leeds facing the highest bills in Yorkshire – £10m and £17.7m respectively.

The economic downturn has made it increasingly difficult to find tenants – and now the taxman is kicking property owners while they are down. That includes pensioners who invested in small commercial or industrial units as a means of supplementing retirement income, unaware that the goalposts were about to be shifted. Others who have invested in properties which are now empty have simply demolished them to avoid paying business rates as it simply doesn’t make sense to pay them with no rent coming in. That does significant harm to our chances of recovery as it depletes the capital stock and reduces the ability of thriving firms to expand and create new jobs.

But it’s not just property owners who are affected. Despite George Osborne offering a brief exemption period for newly built commercial properties, the looming threat of empty property rates is discouraging investment in new developments, or the refurbishment of older ones. This undermines the prospects for economic growth which are already being hampered by the dire output of the construction industry. Indeed, the poor performance of that industry is cited as one of the key reasons we are seeing such poor growth figures right now. Chasing tax revenues by imposing ugly taxes on businesses and pensioners is not going to help the private sector lead a proper recovery.

It’s time for Ministers to recognise the destructive nature of this tax, and at the very least go back to the system that was in place before Brown’s intervention in 2007. The current approach is hammering high streets at what is already an exceptionally challenging time.